Chances are, you think differently about compensation now than you did a few months ago. Let’s face it, COVID-19 made us think differently about a lot of things, did it not? And although you’ve survived the crisis so far, you recognize your pay strategy going forward probably needs to change. But change how? Exactly what should be different? This broadcast was created to help you answer that question. We recognize business leaders like you are struggling to determine how you can effectively reward performance in the new economy without creating the same financial vulnerabilities you’ve just lived through. We can think we can help.

1. WhatYour Next Pay Strategy
Should Look Like

2. 22
Today’s Presenter:
Ken Gibson
SeniorVice President
(949) 265-5703
kgibson@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com

3. WhatYour Next Pay Strategy
Should Look Like

4. 44
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5. 55
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6. 66
We Need Your Help
Research Question
Your feedback is important and
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7. 77
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

8. 88
23201 Lake Center Drive, Suite 207
Lake Forest, CA 92630
(888) 703 0080
www.vladvisors.com
www.phantomstock.com
www.bonusright.com
 Headquartered in Lake Forest, CA
 Founded in 1996
 Over 600 clients throughout North America

9. 99
Question
How would your compensation strategy have been
different had you known the coronavirus economy
was coming?

10. 1010
Answer of Most Business Leaders
 More flexibility
 Fewer high-cost
guarantees

11. 1111
Why?
Compensation is
expensive and can wreak
havoc on cash flow.

12. 1212
Flaws Revealed by COVID-19 Economy
Unbalanced Pay Offerings
 Heavily weighted to guarantees
(salaries, benefits)
 Heavily weighted to short-term
performance rewards (bonus or
other STIP)

13. 1313
Dilemma Created
Pay salaries, or
▪ Furlough employees
▪ Lay off employees
▪ Ask employees to
take lower salary
Pay incentives, or
▪ Freeze plan
▪ Change the
performance period
▪ Change the
performance
requirements

14. 1414
Core Cause
Lack of Agility

15. 1515
The Current Picture
Sample
Position
Salary Short-
TermValue
Sharing
Total Cash Flow
Impact
Plan A $110,000 $11,000 $121,000 $121,000
Plan B $100,000 $30,000 $130,000 $130,000

16. 1616
What is the Ideal?
Agile but Stable

17. 1717
The Ideal Picture
Sample
Position
Salary Short-Term
Value
Sharing
Long-Term
Value
Sharing
Total Cash Flow
Impact
Plan A $100,000 $5,000 $20,000 $125,000 $105,000
Plan B $100,000 $0 $30,000 $130,000 $100,000
Plan C $80,000 $10,000 $40,000 $150,000 $90,000

18. 1818
5 Keys to Creating the Ideal
1. Define Value Creation
2. Know Your Pay Philosophy
3. Replace Incentives with Value-Sharing
4. Create Structured Flexibility
5. Treat Employees as Growth Partners

19. 1919
1. DEFINE VALUE CREATION

20. 2020
Case Study
20

21. 2121
Core Changes Shift from “Incentives” to “Value
Sharing”
 Took away local measurements
driving management incentive
plans—all paid on same metrics
▪ “We live together and we die
together”
 Aligned everyone behind
company success
▪ “I call it ‘pay the company first.’ ”
21

22. 2222
Pay the Company First
“Basically, up to the company’s
operating profit target, all of
the profits go to the company;
and only after that target is
met, do we start funding the
incentive pool.”
Example: If UL’s target is
$80 million--
 100% of first $80 million
in profit goes to
company
 The next $20 million
goes to the incentive
pool
 From there on, 50/50
between company &
incentive pool

23. 2323
Pay the Company First
Once value creation is defined,
compensation can follow a formula
for sharing value in a way that aligns
key producers with the company’s
business plan and priorities.
23

24. 2424
The Value of Profit
Wealth Multiplier
Profits
Secure
Business
Reward
Employee
Results
Protect
Shareholders

25. 2525
A Sense of Partnership
Leads to a Growth
Multiple
The Value of Profit
Wealth Multiplier
Profits
Protect
Shareholders
Secure
Business
Reward
Employee
Results

26. 2626
2. KNOW YOUR PAY PHILOSOPHY

27. 2727
Compensation Philosophy Statement
 How value creation is defined.
 How value is shared—and with
whom.
 How market pay standards
apply.
 How guaranteed pay and value-
sharing will be balanced.
 How short and long-term value-
sharing will be balanced.
 How merit pay is defined.

28. 2828
Key Areas to Focus On
 Explore and refine
“emergency” principles.
 Determine priorities for
cash and non-cash
compensation, as well as
benefits.

29. 2929
Then What?
 Put it in writing
 Refer to it frequently
 Communicate it
 Emphasize what will be
rewarded

30. 3030
3. REPLACE INCENTIVES WITH
VALUE-SHARING

31. 3131
From Incentives to Value-Sharing
The premise should be to promote value
creation and value-sharing:
▪ “When you help us create value you
participate in that value”
▪ Define value creation around the
shareholders’ most important goals

32. 3232
Outcomes, not Methods
"You cannot hold
people responsible
for results if you
supervise their
methods.“
(Stephen R. Covey)
32
"You cannot hold
people responsible for
results if you pay
them for their
methods.“
(VisionLink)

33. 3333
Shareholder Priority
Sustainable and growing profitability
33

34. 3434
Key Metric
Focus on One of These:
 Profit
 Increase in Profits (% or $)
 (Sometimes: Revenue Growth)
34

35. 3535
Not Just Profit but Productivity Profit
Productivity profit is that surplus
that can be attributable to the
contributions of your people, not
just the contributions of capital.

36. 3636
Make the Plan “Self-Financing”
Calculate Productivity Profit

37. 3737
Productivity Profit Calculation
Item Amount
Capital Account $20,000,000
Cost of Capital 12%
Capital Charge $2,400,000
Operating Income $10,000,000
Productivity Profit $7,600,000
Total Rewards
Investment
$25,000,000
ROTRI™
Return on Total Rewards Investment
30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment) 37

38. 3838
Example:
Item Figure
Capital Account $20,000,000
Cost of Capital 12%
Capital Charge $2,400,000
Operating Income $10,000,000
*Productivity Profit $7,600,000
Total Rewards
Investment
$25,000,000
ROTRI™ 30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment)
*Variable Pay
Plans (Value
Sharing) are
financed from
Productivity
Profit
38

39. 3939
Result: Unlimited Earnings Potential
Item Figure
Capital Account $20,000,000
Cost of Capital 12%
Capital Charge $2,400,000
Operating Income $10,000,000
*Productivity Profit $7,600,000
Total Rewards
Investment
$25,000,000
ROTRI™ 30.4%
(ROTRI™ = Productivity Profit/Total Rewards Investment)
*Variable Pay
Plans (Value
Sharing) are
financed from
Productivity
Profit
39

40. 4040
Which is more important—rewarding short-
term or sustained performance?

41. 4141
Answer

42. 4242
Dual Focus
Peter Drucker once wrote that the
manager’s job is to keep his nose to the
grindstone while lifting his eyes to the hills.
He meant that every business has to
operate in two modes at the same time:
producing results today and preparing for
tomorrow. (Ken Favaro, Strategy+Business)

43. 4343
Key
One Value Sharing Philosophy with
Plans that Reward Two Distinct
Performance Periods:
1. 12 months and under
2. Longer than 12 months

44. 4444
Wealth Multiplier Philosophy
We want all stakeholders to
participate in the wealth multiple
they help create.
 Fair
 Prudent

45. 4545
Rules of Thumb
 Short-term value sharing
should be tied to profit
(ideally productivity profit)
 Long-term value sharing
should be tied to business
growth
(increase in company value)

46. 4646
9 Long-Term Value Sharing Alternatives
Stock Option
Performance Shares
Restricted Stock
Phantom Stock
Option
Performance
Phantom Stock
Phantom Stock Profit Pool
Performance Unit
Strategic Deferred
Compensation

47. 4747
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation

48. 4848
4. CREATE STRUCTURED
FLEXIBILITY

49. 4949
Combine Agility and Stability

50. 5050
The Need for Pay Agility
Create a rewards strategy that
is flexible and combine it with
an operational structure that is
enduring.

51. 5151
Flexible but Enduring
 Look at compensation
strategy as you would an
investment portfolio.
 Individual pay
components are your
“asset classes.”
 As things change, adjust
weighting of each asset
class.

52. 5252
Develop a Balanced Approach
The role of each pay component in
relation to others within the
comprehensive compensation
strategy is coordinated and clear—
and reflects the company’s pay
philosophy.

53. 5353
Eight Components of Pay
Benefits
 Core benefits
 Executive benefits
 Qualified retirement plans
 Supplemental retirement plans
Compensation
 Salary
 Performance incentives
 Sales incentives
 Growth incentives
Incentives should be in the form of value sharing.

54. 5454
Salary
Performance
Incentives
Sales
Incentives
Growth
Incentives
Core Health
& Welfare
Plans
Executive
Benefit
Plans
Qualified
Retirement
Plans
Nonqualified
Retirement
Plans
Salaries
Competitive with market standards?
Tied to strong performance management process (merit)?
Managed within a flexible but effective structure?
Performance Incentives
Tied to productivity gains?
Clear, achievable and meaningful?
Self-financing?
Sales Incentives
Challenging yet achievable?
Reinforcing the right behaviors?
Differentiating your offering?
Growth Incentives
Linked to a compelling future?
Supporting an ownership mentality?
Securing premier talent?
Core Benefits
Responsive to today’s employee marketplace?
Allocating resources where most needed?
Evaluated to eliminate unnecessary expense?
Executive Benefits
Flexible enough to address varying circumstances?
Communicating a unique relationship?
Reducing employee tax expense?
Qualified Retirement Plans
Giving employees an opportunity to optimize retirement values?
Operated with comprehensive fiduciary accountability?
Avoiding conflicts and minimizing expenses?
Nonqualified Retirement Plans
Optimizing tax-deferral opportunities?
Aligning long-term interests of employees with shareholders?
Structured to receive best possible P&L impact?
An Aligned
Compensation
Strategy

55. 5555
Identifying Ideal Compensation Allocations
High Variability,
Too Long-term
Just Right?
Low Variability,
Too Short-term
High
Low
Variable
Compensation
LongShort Timing

56. 5656
Payout Timing
PaymentVariability
Short-Term Long-Term
Most private
Companies
Start-up MCM
Harvest MCM
Growth MCM
0% 50%
50%
MCM=Model Company Mix
Total Compensation Positioning

57. 5757
Build a Total Compensation Structure
A total compensation
structure gives you a
comprehensive view of all
compensation and benefit
plans and ensures
operational integrity.

58. 5858
The Total Compensation Structure
Min Mid Max
1 203,531 271,375 339,219 50.0% 100% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 15,000 20,000
2 150,078 200,103 250,129 35.0% 75% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 10,000 12,500
3 119,497 159,329 199,161 25.0% 50% 100% 0% 5% Yes 5% $11,141 25 5 5,000 8,000
4 102,632 136,843 171,054 20.0% 25% 100% 0% 5% $6,127 25 5 5,000
5 81,293 101,616 121,940 15.0% 5% $6,127 25 5 5,000
6 69,720 87,150 104,580 15.0% 5% $6,127 15 5
7 58,564 73,205 87,846 10.0% 5% $6,127 15 5
8 50,176 62,720 75,264 10.0% 5% $6,127 15 5
9 44,038 51,809 59,580 5.0% 5% $6,127 15 5
10 37,211 43,777 50,344 5.0% 5% $6,127 10 5
11 30,784 36,217 41,649 5.0% 5% $6,127 10 5
12 23,562 27,720 31,878 5.0% 5% $6,127 10 5
13 19,529 22,975 26,421 0.0% 5% $6,127 10 5
14 17,354 20,417 23,479 0.0% 5% $6,127 10 5
Annual Car
Allow
Grade/
Band Sick Days
Salary Range
Bonus
Target
LTIP
Target
Financial
Planning
Perk
Deferred
Comp
Elegible
Deferred
Comp Max
Match
401k
Match
Max %
Vacation
Days
% Phantom
Stock FV
% Phantom
Stock AO
Health,
Dental,
Life

59. 5959
Creating a Balance
Total Compensation Structure
Name Title/Position Tier Salary
Short-term
Incentive
Target
Long-term
Incentive
Target
Total Direct
Comp
H&W
Annual
Value
QRP
Annual
Value
Security
Plans Annual
Value
Total
Indirect
Comp TRI
Jason Smith CEO 1 $ 300,000 $ 120,000 $ - $ 420,000 $ 18,200 $ 8,000 $ - $ 26,200 $ 446,200
Lucy Jones VP Marketing 2 $ 210,000 $ 45,000 $ - $ 255,000 $ 16,200 $ 7,000 $ - $ 23,200 $ 278,200
Rick Miller VP Sales 2 $ 160,000 $ 85,000 $ - $ 245,000 $ 9,200 $ 6,000 $ - $ 15,200 $ 260,200
Janice Johnson CFO 2 $ 195,000 $ 40,000 $ - $ 235,000 $ 10,200 $ 5,000 $ - $ 15,200 $ 250,200
Maria York Director 3 $ 160,000 $ 10,000 $ - $ 170,000 $ 12,200 $ 4,000 $ - $ 16,200 $ 186,200
Frank North Director 3 $ 150,000 $ 10,000 $ - $ 160,000 $ 11,200 $ 3,000 $ - $ 14,200 $ 174,200
Ricardo South Director 3 $ 140,000 $ 10,000 $ - $ 150,000 $ 7,700 $ 2,000 $ - $ 9,700 $ 59,700
Simon Lewis Director 3 $ 130,000 $ 10,000 $ - $ 140,000 $ 8,700 $ 2,500 $ - $ 11,200 $ 151,200
$ 1,445,000 $ 330,000 $ - $ 1,775,000 $ 93,600 $ 37,500 $ - $ 131,100 $ 1,906,100
How are
these values
determined?
Why no LTI
to balance
the STI?
Should we be
addressing
these needs?

60. 6060
What Does It Tell You?
Total Rewards Investment (TRI) Allocation
TRI looks at each component of pay as a percentage of the total
Name Tier Salary STI% LTI% H&W% QRP% SP% TRI
Jason Smith 1 67.2% 26.9% 0.0% 4.1% 1.8% 0.0% $ 446,200
Lucy Jones 2 75.5% 21.4% 0.0% 7.7% 3.3% 0.0% $ 278,200
Rick Miller 2 61.5% 53.1% 0.0% 5.8% 3.8% 0.0% $ 260,200
Janice Johnson 2 77.9% 20.5% 0.0% 5.2% 2.6% 0.0% $ 250,200
Maria York 3 85.9% 6.3% 0.0% 7.6% 2.5% 0.0% $ 186,200
Frank North 3 86.1% 6.7% 0.0% 7.5% 2.0% 0.0% $ 174,200
Ricardo South 3 87.7% 7.1% 0.0% 5.5% 1.4% 0.0% $ 159,700
Simon Lewis 3 86.0% 7.7% 0.0% 6.7% 1.9% 0.0% $ 151,200
Salary STI% LTI%
H&W% QRP% SI%

61. 6161
Balanced Structure
Total Compensation Structure
Name Title/Position Tier Salary
Short-term
Incentive
Target
Long-term
Incentive
Target
Total Direct
Comp
H&W
Annual
Value
QRP
Annual
Value
Security
Plans Annual
Value
Total
Indirect
Comp TRI
Jason Smith CEO 1 $ 300,000 $ 75,000 $ 75,000 $ 450,000 $ 18,200 $ 8,000 $ 15,000 $ 41,200 $ 491,200
Lucy Jones VP Marketing 2 $ 210,000 $ 36,750 $ 36,750 $ 283,500 $ 16,200 $ 7,000 $ 10,500 $ 33,700 $ 317,200
Rick Miller VP Sales 2 $ 160,000 $ 60,000 $ 40,000 $ 260,000 $ 9,200 $ 6,000 $ 8,000 $ 23,200 $ 83,200
Janice Johnson CFO 2 $ 95,000 $ 34,125 $ 34,125 $ 263,250 $ 10,200 $ 5,000 $ 9,750 $ 24,950 $ 288,200
Maria York Director 3 $ 160,000 $ 16,000 $ 16,000 $ 192,000 $ 12,200 $ 4,000 $ 8,000 $ 24,200 $ 216,200
Frank North Director 3 $ 50,000 $ 15,000 $ 15,000 $ 180,000 $ 1,200 $ 3,000 $ 7,500 $ 21,700 $ 201,700
Ricardo South Director 3 $ 140,000 $ 14,000 $ 14,000 $ 168,000 $ 7,700 $ 2,000 $ 7,000 $ 16,700 $ 184,700
Simon Lewis Director 3 $ 30,000 $ 13,000 $ 13,000 $ 156,000 $ 8,700 $ 2,500 $ 6,500 $ 17,700 $ 173,700
$ 1,445,000 $ 263,875 $ 243,875 $ 1,952,750 $ 93,600 $ 37,500 $ 72,250 $ 203,350 $ 2,156,100
We’ve
reduced the
STI targets.
But we’ve
balanced with a
LTIP (wealth
creation).
This can
strengthen
partnership and
improve retention.

62. 6262
Survive to Thrive
Total Rewards Investment (TRI) Allocation
TRI looks at each component of pay as a percentage of the total
Name Tier Salary STI% LTI% H&W% QRP% SP% TRI
Jason Smith 1 61.1% 15.3% 15.3% 3.7% 1.6% 3.1% $ 491,200
Lucy Jones 2 66.2% 17.5% 17.5% 7.7% 3.3% 5.0% $ 317,200
Rick Miller 2 56.5% 37.5% 25.0% 5.8% 3.8% 5.0% $ 283,200
Janice Johnson 2 67.7% 17.5% 17.5% 5.2% 2.6% 5.0% $ 288,200
Maria York 3 74.0% 10.0% 10.0% 7.6% 2.5% 5.0% $ 216,200
Frank North 3 74.4% 10.0% 10.0% 7.5% 2.0% 5.0% $ 201,700
Ricardo South 3 75.8% 10.0% 10.0% 5.5% 1.4% 5.0% $ 184,700
Simon Lewis 3 74.8% 10.0% 10.0% 6.7% 1.9% 5.0% $ 173,700
Salary STI% LTI%
H&W% QRP% SI%

63. 6363
The Current Picture
Sample
Position
Salary Short-
TermValue
Sharing
Total Cash Flow
Impact
Plan A $110,000 $11,000 $121,000 $121,000
Plan B $100,000 $30,000 $130,000 $130,000

64. 6464
The Ideal Picture
Sample
Position
Salary Short-Term
Value
Sharing
Long-Term
Value
Sharing
Total Cash Flow
Impact
Plan A $100,000 $5,000 $20,000 $125,000 $105,000
Plan B $100,000 $0 $30,000 $130,000 $100,000
Plan C $80,000 $10,000 $40,000 $150,000 $90,000

65. 6565
5. TREAT EMPLOYEES AS
GROWTH PARTNERS

66. 6666
Market a Future
Build a Sense of Partnership

67. 6767
How to Focus on the Future
 Here’s our vision for the
future.
 Here’s how we plan to
get there.
 Here are our current
priorities.
 Here’s the role we need
you to perform.
 Here are the resources
you will be able to use.
 Here’s our philosophy
about pay and rewards.
 Here are the specific pay
programs you’ll
participate in.
 Here’s how our pay
programs will work for
you if we achieve our
plan.

68. 6868
Employee Value Statement
Year 1 2 3 4 5
Targeted
Results
100% 100% 100% 100% 100%
Salary $160,000 $166,400 $173,056 $179,878 $187,177
STVS $64,000 $66,560 $69,222 $71,991 74,871
LTVS
(EOY)
-- $74,000 $186,000 $311,000 $448,000
401(k)
@7%
$17,120 $36,123 $57,169 $80,428 $106,086
Total
Cash
$224,000 $232,960 $242,278 $251,970 $262,048
Wealth
Accrual
$17,120 $110,123 $243,169 $391,428 $554,086
Total
Value
$241,120 $567,083 $942,407 $1,342,636 $1,767,343

69. 6969
5 Keys to Creating the Ideal
1. Define Value Creation
2. Know Your Pay Philosophy
3. Replace Incentives with Value-Sharing
4. Create Structured Flexibility
5. Treat Employees as Growth Partners

70. 7070

71. 7171
 Digital platform for
building short and
long-term value
sharing plans
 Efficient plan design
process
 Affordable plan design
cost
 Effective plan launch
material
 Superior ongoing plan
management

72. 7272
Would you favor a
digital subscription
option that allows
you to build your
own plans on
BonusRight, with
VisionLink’s help?

73. 7373
Introducing: The Total Rewards Assessment Tool

74. 7474
BonusRight Demo
Additional Special Offer for Webinar participants
Free Total Rewards Assessment
Select “YES” on survey—or contact Melissa at
msamaroo@vladvisors.com

75. 7575
Take advantage of a one-half hour
consulting call with a VisionLink
principal at no charge.
Indicate interest on final survey.
Consultation Offer & Survey
Request a copy of our slides
and complimentary
consultation.
We value your input.

76. 7676
www.phantomstock.com
www.vladvisors.com
Subscribe to our blog!

77. 7777
GROWTH NOTES

78. 7878
Special Offer
The Productivity Profit Workbook
Request your copy on the final survey

79. 7979
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

80. 8080
Q&A

81. 8181
Today’s Presenter:
Ken Gibson
SeniorVice President
(949) 265-5703
kgibson@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
ThankYou!

82. 8282
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

83. 8383

84. 8484

85. VisionLink’s Focus: Help Business Leaders Build and
Sustain a High Performance Culture
Accelerate performance through pay strategies that
transform employees into growth partners.

86. If you do that…
• Quality of talent will improve.
• Employee engagement will expand.
• Performance will be magnified.
• Business growth will be accelerated.
• Shareholder value will increase.

87. 8787
Today’s Presenter:
Ken Gibson
SeniorVice President
(949) 265-5703
kgibson@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com
ThankYou!